After Three-Month Recess, Microsoft Trial Resumes

By JOEL BRINKLEY

Published: June 2, 1999

WASHINGTON, June 1—
After a three-month recess and unsuccessful efforts to reach a settlement, the rebuttal phase of the Microsoft antitrust trial opened today with a concerted attack on the previous testimony of the company's chief economic witness.

In the attack, Franklin M. Fisher, a professor of economics at the Massachusetts Institute of Technology, who is testifying on behalf of the Government for the second time, called the economic analysis of Richard L. Schmalensee, his former student and a fellow economist at M.I.T., ''peculiar,'' ''ridiculous,'' ''credulous'' and naive.

Mr. Fisher is the first of six witnesses, three for each side, who are to take the stand in this, the final stage of testimony that is intended to allow the Government and the Microsoft Corporation to rebut charges made during the earlier stage of the trial. Mr. Schmalensee, a dean at M.I.T.'s Sloan School of Management, will return to the stand later this month.

Under pressure from Federal District Judge Thomas Penfield Jackson, lawyers for both sides have agreed to complete all of the rebuttal testimony by July 4. Government officials say that in this time, they hope to fill some holes in their case -- while doing nothing to damage the commanding advantage they believe they already hold, based on Micrsoft's lackluster performance in court during the earlier portion of the trial.

Microsoft intends to challenge the credibility of the other side's case, a strategy that proved effective for David Boies, the Government's lead trial lawyer, in his earlier questioning of Microsoft witnesses. But by its choice of witnesses and topics of emphasis, Microsoft also appears to be trying to mitigate damages, to soften the possible remedies, should it be found to have violated antitrust laws.

Both Mr. Fisher and Mr. Schmalensee testified at length earlier in the trial on the question of whether Microsoft holds a legal monopoly in personal-computer operating systems -- a critical question that will determine what kind of remedies can be applied if the Government prevails.

In his testimony early this year, Mr. Schmalensee tried to make the case that Microsoft was not a monopoly, largely by suggesting that the few, marginal competitors Microsoft now faces, or others, could conceivably become serious challengers in the future.

Mr. Fisher tried yesterday to puncture that argument, saying, ''Just because there are unknown future threats does not mean Microsoft doesn't have a monopoly today.''

Mr. Boies led Mr. Fisher through a carefully choreographed series of questions during the direct examination -- a new practice for this trial. Earlier, witnesses submitted their direct testimony in writing.

Mr. Fisher called several of Mr. Schmalensee's analyses ''reasonably confused,'' adding at one point, in a discussion of market dominance, ''I don't think Dean Schmalensee understood this issue.''

Later in the day, Mr. Boies led Mr. Fisher through a critical dissection of several charts and graphics that Mr. Schmalensee had offered as evidence. Mr. Fisher argued that in several of them, his colleague had made incorrect assumptions and offered improper numbers, leading to erroneous conclusions.

For example, Mr. Schmalensee had tried to make the case that Microsoft was charging too little for Windows -- something a monopolist was unlikely to do. He had then offered a complex economic formula for a realistic price.

But this afternoon, Mr. Fisher said, ''he made a big mistake.''

Mr. Schmalensee's formula put the average price of a personal computer at $2,000 or $2,500, when, in fact, the average price is now about $950, Mr. Fisher said.

The witness also criticized Mr. Schmalensee's analysis of the market share for Microsoft's Internet Explorer browser, which showed Netscape as a strong competitor. By Mr. Fisher's analysis, Internet Explorer now has about 62 percent of the corporate market compared with 38 percent for Netscape, a unit of America Online.

But in the end, Mr. Fisher said, it did not really matter whether Microsoft had 40 percent of the browswer market, or 60 percent or 80 percent.

A central tenet of the Government's case is that Microsoft fought to crush Netscape because Microsoft feared that Netscape's browser could one day be used as an alternative to the Windows operating system. If that happened, Microsoft would lose its crucial advantage, the fact that software developers write programs for Windows first.

''The goal was not necessarily to drive Netscape to zero,'' Mr. Fisher said. It was, he said, to make sure that Netscape did not maintain a market share that would ever allow sofware developers to write for Netscape alone. So by that measure, Mr. Fisher said, ''Microsoft has already won.''